Canadian mortgage rates have, more or less, held steady in the second quarter after trending surprisingly downward to start the year. The 5-year fixed rate, the qualifying rate for all insured mortgages, remains at 4.64 per cent, the lowest level on record. Key bond yields, from which mortgage rates are priced, have risen from their own record-low levels; however, those increases have yet to nudge mortgage rates higher and are unlikely to do so during the important spring/summer home-buying season.

Since the Bank surprised markets in January, expectations for future rate decisions have fluctuated wildly, whipsawing longer-term interest rates. The five-year bond yield has recently rebounded after breaching the 1 per cent mark on its way to a record low of 0.59 per cent. Meanwhile, the five-year fixed mortgage rate, the qualifying rate for all insured mortgages, currently sits at 4.74 per cent. That may be the absolute floor on the posted five-year fixed given that a 75 basis point decline in the five-year bond yield translated to only a 4 basis point reduction in the qualifying rate.

The Bank of Canada announced March 4, 2015 that it is maintaining its target for the overnight rate at 0.75 per cent. In the press release accompanying the decision, the Bank noted that total CPI inflation has fallen as expected given the significant drop in oil prices, but core inflation has been temporarily boosted by a lower Canadian dollar.

The Canadian economy contracted 0.2 per cent in November. Falling energy prices resulted in declining output in the oil and gas sector, while manufacturing and mining production was also lower. Given available data, the Canadian economy likely expanded 1.9 per cent in the fourth quarter of 2014, and about 2.4 per cent for the year as a whole.

In a bombshell announcement this morning, the Bank of Canada announced that it is lowering its target overnight rate to 0.75 per cent. The surprise loosening of monetary policy is in response to the recent dramatic decline in oil prices and the consequent negative impact on Canadian growth and inflation.

Here is an excellent analysis of the factors that will affect interest rates over the coming months. Topics covered include: the strength of the U.S. recovery, slowing growth in China, the continuation of large-scale Quantitative Easing (QE) programs, the price of oil and the potential for the next financial crisis. It is a very good read.